German Takeover Could Push NYSE Out of American Control

Potential merger would make a German company the majority owner of the famed New York Stock Exchange (Published Thursday, Feb. 17, 2011)

The parent company of the New York Stock Exchange has agreed to be acquired by the operator of the Frankfurt stock exchange in a deal that will create the world's largest financial markets company.

The new company, a combination of NYSE Euronext Inc. and Deutsche Boerse, would have dual headquarters in Frankfurt and New York. The companies didn't say what the new company would be called. The deal announced Tuesday must still be approved by shareholders and regulators.

NYSE Euronext's CEO Duncan Niederauer will be chief executive, and Deutsche Boerse' CEO Reto Francioni will become chairman. The new company will own exchanges in New York, Frankfurt, Paris, Amsterdam and other cities that will continue to operate under their existing names.

Deutsche Boerse shareholders will own 60 percent of the new company, while shareholders of NYSE Euronext will own 40 percent, valuing NYSE's parent company at about $10 billion. The combined company will be worth $25 billion, according to Sandler O'Neill analyst Richard Repetto.

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A new holding company based in the Netherlands will hold the assets of Deutsche Boerse and NYSE Euronext. Deutsche Boerse shareholders will get one share in the new company for each share they own, while NYSE Euronext shareholders will get 0.47 of a share.

Senator Charles Schumer (D-NY) said the name of the new exchange remains a concern. In a statement released after the merger was announced, Schumer said there was no reason NYSE "shouldn't come first in the new exchange's name." He also seemed to issue a veiled threat. Any name that puts NYSE second "could have negative consequences" for the merger.

Niederauer told reporters at a morning news conference that the companies expected to announce a name for the new company in a month or two.

"It's an emotional decision for everyone, let's just be honest here," Niederauer said. "Brands are always an emotional decision. There's a lot of national pride, particularly with the businesses we operate."

Owners of traditional stock exchanges have been combining for several years to save costs as competition mounts from new computerized stock exchanges with names like BATS and Chi-X.

The NYSE Group, operator of the New York Stock Exchange, bought Euronext for $10.2 billion in 2007, beating out a rival bid from Deutsche Boerse. That deal remains the largest cross-border merger of exchanges, according to Thomson Reuters. The combined company handles stock and derivative markets in Amsterdam, Brussels, Lisbon and Paris as well as the NYSE Liffe derivatives market.

Deutsche Boerse, whose predecessor was founded in 1585, operates the stock market in Europe's largest economy. It also runs Europe's largest derivative exchange, the Eurex.

The deal is expected to lead to $400 million in savings, mainly from technology and clearing costs. It will also give the combined company a larger footprint in the lucrative business of trading in futures and options contracts.

The largest exchange owner in the U.S. is currently the $20 billion CME Group Inc. CME runs the Chicago Mercantile Exchange, where wheat, corn and pork belly futures are traded, as well as a number of other exchanges.

Shares of both companies fell after the deal was announced. NYSE Euronext's shares fell 3.2 percent in New York, while Deutsche Boerse's fell 2.4 percent in Frankfurt. NYSE shares had jumped 14 percent February 9 after press reports that it was in talks with the German company.